mbp1133 | managerial accounting · pdf filembp1133 | managerial accounting prepared by dr...

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MBP1133 | Managerial AccountingPrepared by Dr Khairul Anuar

L1 – Overview of Managerial Accounting

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Financial and Managerial Accounting: Seven Key Differences

Financial Accounting Managerial Accounting

1. Users External persons who Managers who plan for

make financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on

versus relevance objectivity and verifiability relevance

4. Precision versus Emphasis on Emphasis on

timeliness precision timeliness

5. Subject Primary focus is on Focus on

companywide reports segment reports

6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS

and prescribed formats or any prescribed format

7. Requirement Mandatory for Not

external reports Mandatory

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Work of Management

1. Planning 3. Decision

Making2. Controlling

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Planning

Establish Goals.

Specify How Goals

Will Be Achieved.

Develop Budgets.

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Controlling

The control function gathers feedback to

ensure that plans are being followed.

Feedback in the form of performance reports

that compare actual results with the budget

are an essential part of the control function.

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Decision Making

Decision making involves

making a selection among

competing alternatives.

What should

we be selling?Who should

we be serving?How should

we execute?

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Managerial Accounting Activities:

Marketing Majors

How many salespeople should we

plan to hire to serve a new

territory?

How much should we budget for

TV, print, and internet advertising?

Planning

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Marketing Majors

Are we accumulating too much

inventory during the holiday

shopping season?

Is the budgeted price cut

increasing unit sales as expected?

Controlling

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Marketing Majors

Should we sell directly to

customers or use a distributor?

Should we sell our services as

one bundle or sell them

separately?

Decision

Making

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Supply Chain Management Majors

How much should we budget for

next period’s utility expense?

How many units should we plan to

produce next period?

Planning

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Are we achieving our goal of

reducing the number of defective

units produced?

Did we spend more or less than

expected for the units we actually

produced?

Controlling

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Should we redesign our

manufacturing process to lower

inventory levels?

Should we transfer production of a

component part to an overseas

supplier?

Decision

Making

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Human Resource Management Majors

How much should we plan to

spend on employee recruitment

advertising?

How much should we plan to

spend for occupational safety

training?

Planning

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Are we meeting our goal of

completing timely performance

appraisals?

Is our employee retention rate

exceeding our goals?

Controlling

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Should we hire temporary workers

or full-time employees?

Should we hire an on-site medical

staff to lower our healthcare

costs?

Decision

Making

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Managerial Accounting: Beyond the Numbers

Controlling

Planning

Decision

Making

The primary purpose of

this course is to teach

measurement skills that

managers use to support

planning, controlling, and

decision making

activities.

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What net income should my company

report to its stockholders?

Measure and report historical data

that complies with applicable rules.

How will my company serve its customers?

Measure and analyze mostly non-

financial, process-oriented data.

Will my company need to borrow money?

Measure and analyze estimated

future cash flows.

Measurement

skills help

managers

answer

important

questions.

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Six Business Management Perspectives that

go beyond the numbers to enable intelligent

planning, control, and decision making:

1. An Ethics Perspective

2. A Strategic Management Perspective

3. An Enterprise Risk Management Perspective

4. A Corporate Social Responsibility Respective

5. A Process Management Prospective

6. A Leadership Perspective

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An Ethics Perspective - Competence

CompetenceFollow applicable

laws, regulations,

and standards.

Maintain

professional

competence.

Provide accurate, clear, concise, and

timely decision support information.

Recognize and communicate professional

limitations that preclude responsible judgment.

The Institute of Management Accountant’s (IMA)

Statement of Ethical Professional Practice provides

guidelines for ethical behavior.

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Confidentiality

Do not disclose confidential

information unless legally

obligated to do so.

Ensure that subordinates do

not disclose confidential

information.

Do not use confidential

information for

unethical or illegal

advantage.

An Ethics Perspective - Confidentiality

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Mitigate conflicts of interest

and advise others of

potential conflicts.

Abstain from activities that

might discredit the profession.

Refrain from

conduct that would

prejudice carrying

out duties ethically.Integrity

An Ethics Perspective - Integrity

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Communicate information

fairly and objectively.

Disclose all relevant

information that could

influence a user’s

understanding of reports

and recommendations.

Credibility

An Ethics Perspective - Credibility

Disclose delays or

deficiencies in information

timeliness, processing, or

internal controls.

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Abandoning ethical standards in business would

lead to a lower quality of life with less

desirable goods and services at higher prices.

Why Have Ethical Standards?

Without ethical standards in business, the

economy, and all of us who depend on it for

jobs, goods, and services, would suffer.

Ethical standards in business are essential for a

smooth functioning economy.

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A Strategic Management Perspective

A strategyis a “game plan”

that enables a companyto attract customers

by distinguishing itselffrom competitors.

The focal point of a

company’s strategy should

be its target customers.

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Customer Value Propositions

Understand and respond to

individual customer needs.

Customer

Intimacy

Strategy

Operational

Excellence

Strategy

Deliver products and services

faster, more conveniently,

and at lower prices.

Product

Leadership

Strategy

Offer higher quality products.

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An Enterprise Risk Management Perspective

A process used

by a company to

proactively identify

and manage risk.

Once a company identifies its risks, perhaps the

most common risk management tactic is to reduce

risks by implementing specific controls.

Should I try to avoid the

risk, accept the risk, or

reduce the risk?

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An Enterprise Risk Management Perspective

Examples of Controls to

Examples of Business Risks Reduce Business Risks

● Intellectual assets stolen from ● Create firewalls that prohibit com-

computer files puter hackers from corrupting or

stealing intellectual property

● Products harming customers ● Develop a formal and rigorous

new product testing program

● Losing market share due to the ● Develop an approach for legally

unforeseen actions of competitors gathering information about

competitors' plans and practices

● Poor weather conditions shutting ● Develop contingency plans for

down operations overcoming weather-related

disruptions

● Website malfunction ● Thoroughly test the website

before going "live" on the Internet

● Financial statements unfairly ● Count the physical inventory on

reporting the value of inventory hand to make sure that it agrees

with the accounting records

● An employee accessing ● Create password-protected barriers

unauthorized information that prohibit employees from

obtaining information not needed

to do their jobs

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A Corporate Social Responsibility Perspective

CSR extends beyond legal compliance

to include voluntary actions that satisfy

stakeholder expectations.

Corporate social responsibility (CSR) is a concept

whereby organizations consider the needs

of all stakeholders when making decisions.

Customers Employees CommunitiesSuppliers Stockholders

Environmental

& Human Rights

Advocates

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Corporate Social Responsibility

Companies should provide customers with: Companies and their suppliers should provide

● Safe, high quality products that are fairly employees with:

priced ● Safe and humane working conditions

● Competent, courteous, and rapid delivery ● Non-discriminatory treatment and the

of products and services right to organize and file grievances

● Full disclosure of product-related risks ● Fair compensation

● Easy to use information systems for ● Opportunities for training, promotion,

shopping and tracking orders and personal development

Companies should provide suppliers with: Companies should provide communities with:

● Fair contract terms and prompt payments ● Payment of fair taxes

● Reasonable time to prepare orders ● Honest information about plans such as

● Hassle-free acceptance of timely and plant closings

complete deliveries ● Resources that support charities, schools,

● Cooperative rather than unilateral and civic activities

actions ● Reasonable access to media sources

Companies should provide stockholders with: Companies should provide environmental

● Competent management and human rights advocates with:

● Easy access to complete and accurate ● Greenhouse gas emissions data

financial information ● Recycling and resource conservation data

● Full disclosure of enterprise risks ● Child labor transparency

● Honest answers to knowledgeable ● Full disclosure of suppliers located in

questions developing countries

Examples of Corporate Social Responsibility

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A Process Management Perspective

Business functions making up the value chain

Product Customer

R&D Design Manufacturing Marketing Distribution Service

A business

process is a series of

steps that are followed in order to

carry out some task in

a business.

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A Leadership Perspective

Organizational leaders unite the

behavior of employees around

two common themes—pursuing

strategic goals and making

optimal decisions.

Factors that influence behavior:

• Intrinsic Motivation

• Extrinsic Incentives

• Cognitive Bias

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